Nine Consecutive Weeks of Positive Stock Market Returns and Counting
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 02/22/19. Rates and Economic Calendar Data from Bloomberg as of 02/25/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global equity markets posted strong results across the board last week. In the U.S., the S&P 500 Index gained 0.65% while the Dow Jones Industrial Average rallied 0.59%, extending its streak to 9 consecutive weeks of positive returns. Small cap stocks, measured by the Russell 2000 Index, continue to lead the pack in 2019 advancing 1.34% last week. International equities managed to outpace their U.S. counterparts for the week as developed and emerging markets gained 1.65% and 2.79% respectively. The 10 year U.S. Treasury yield finished slightly lower compared to the previous week, settling in at 2.65%.
The rally in U.S. stocks was primarily driven by trade related news and updates on monetary policy. The U.S. and China resumed trade negotiations early in the week as we moved closer to the March 1st tariff deadline imposed by President Trump. However, late in the week, a meeting between President Trump and Chinese Vice Premier Liu concluded with plans to further negotiate over the weekend, sparking further optimism of an eventual deal. On Wednesday, investor focus turned to the Federal Reserve as minutes from the FOMC meeting in January were released. Market participants were comforted after hearing policy makers were still favoring a patient approach to further interest rate increases and that a vast majority of the members favored suspending balance sheet reductions by the end of 2019.
Many major averages are already up double digits year-to-date in 2019 and we’re not even through February. We continue to believe that the theme for 2019 will be “Slowing but Growing” as it relates to both earnings growth and economic growth (as measured by GDP), however, the timing and magnitude of future fluctuations in the stock and bond markets will be difficult to predict. Stocks are heating up and Treasury yields remain low, yet the dollar remains relatively strong even during a growing U.S. budget deficit. There’s also an interesting dichotomy of signals being sent between bond yield curves and stock market upswings in certain countries overseas. It’s becoming more apparent that this slowdown will likely become apparent during the second half of 2019 and potentially intensify in 2020, depending, of course, on a number of economic and political factors.
Given all of the uncertainties facing investors across the globe, asset allocation, diversification, and adherence to a longer term, customized financial plan will be critical in the months and years ahead. We encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolios through various market cycles within an appropriately diversified framework that is consistent with their objectives, time-frame and tolerance for risk.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.
The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.
Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.
ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.
ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
Investors cannot directly purchase any index.
LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.